Archive for the ‘Pennies and cents’ Category

The discipline of economics in crisis. The credit crunch has exposed many economists’ most cherished ideas for the nonsense they manifestly are. With its theories in tatters, what now for the dismal science?

It looks as if the best bet is take a a few leaves out of some network science text books. Economies are complex networks, after all, although economists have failed to notice.

Until now! One of the first onto the network bandwagon is Nobel prize-winner Jo Stiglitz from Columbia University and a few pals who have been examining the Japanese credit network between banks and quoted firms in 2004.

Since the collapse of the bubble economy in the early 90s, the Japanese banking system has been going through a similar crisis to the one sweeping the west, so there is plenty to learn (not least of which is the time it can take to turn things around, although most western economists are ignoring this at present) .

Where did the credit crunch start? According to Reginald Smith at the Bouchet-Franklin Research Institute in Rochester, it began in the property markets of California and Florida in early 2007 and is still going strong.

To help understand how the crisis has evolved, Smith has mapped the way it has spread as reflected in the stock prices of the S&P 500 and NASDAQ-100 companies. The picture above shows how the state of affairs changed between August 2007 and October 2008. Each dot represents a stock price and the colour, its return (green equals bad and red equals catastrophic).

Wealth distribution in the western world follows a curious pattern. For 95 per cent of the population, it follows a Boltzmann Gibbs distribution, in other words a straight line on a log-linear scale. For the top 5 per cent, however, wealth allocation follows a Pareto distribution, a straight line on a log-log scale, which is a far less equitable way of apportioning wealth.

Nobody really understands how this arrangement comes about but Javier Gonzalez-Estevez from the Universidad Nacional Experimental del Tachira in Venezuela and colleagues think they can thrown some light on the problem.

They have created an agent-based model in which each agent’s “wealth” evolves according to the way it interacts with its neighbours. Gonzalez-Estevez and co say that a simple model of this kind accurately reproduces the combination of Boltzmann Gibbs and Pareto distributions seen in real economies.

But get this. The teams says: “it is possible to bring the system from a particular wealth distribution to another one with a lower inequality by performing only a small change in the system configuration”. That’s an intriguing possibility.

In their latest work they say that it is possible to switch between Pareto and Boltzmann-Gibbs distributions, simply by increasing the number of neighbors each agent has.

In other words, this triggers a phase change in which wealth suddenly becomes more equally distributed (or vice versa).

That’s going to be a fascinating area for econophysicists to explore. Economists have always thought about that changing the distribution of wealth means tax collection and redistribution.

Now there’s a whole new way in which it might be approached. Gonzalez-Estevez and team make no suggestion as to how it might be done in real life economies but you can be sure that more than a few econophysicists will be thinking about how to trigger these kinds of phase changes for real.

Taxes as a way of redistributing wealth could become a thing of the past. But it will be as well to remember that not everyone wants to makes wealth distribution fairer.

Conducting polymers just keep getting better. This week, Sayani Majumdar at Åbo Akademi University in Finland and pals say they’ve used using an inkjet printer to print a plastic circuit onto a plastic substrate that clearly shows magnetoresistance at room temperature.

The French start up Aldebaran-Robotics based in Paris has high hopes for its humanoid robot called NAO. The device is 57 cm high and weighs 4.5 kilograms (about the size of a 6 month old baby) and you may be about to see a lot more of it. The company has sent a simplified version to 16 teams playing in the Robocup humanoid football league this year.

NAO looks an impressive device, judging by the design, which the company has posted on the arXiv today. And others clearly agree. Earlier this year, the company picked up Euros 5 million in venture capital funding to help commercialise the device. The target market is university research labs involved in developing the next generation of software and hardware for robotics.

That’s a smart move because it could make NAO a de facto standard.

NAO doesn’t come cheap, however. A single robot will set you back Euros 10K but that is significantly cheaper than most other humanoids. Fujitsu’s HOAP costs $50K, for instance, and Honda hasn’t been able to put price on Asimo.

The company hopes that economies of scale will bring down the price as production scales up. Eventually it hopes to sell NAO to the public for Euros 4K each.

The price of oil has quadrupled since 2003. If this dramatic rise were the result of speculation in a bubble economy and not the normal forces of supply and demand, how would you go about proving it?

Try using some well known concepts from statistical physics and complexity theory, says our old friend Didier Sornette at the Swiss Federal Institute of Technology in Zurich.

For economists, the term bubble refers to a situation in which excessive expectations of future price increases cause prices to rise above what can justified by a fundamental valuation.

One of the signatures of such a bubble is a faster-than-exponential growth in prices, something that has been seen in several recent bubbles such as the dotcom boom that busted in 2000, the US house price surge that peaked in 2006 and the sub-prime market which collapsed in 2007.

So Sornette’s analysis involves identifying the signature of faster-than-exponential growth, which is relatively easy to spot, and then identifying the positive feedback mechanisms that may have caused it. These, he says, are:

(2) Search for a new high return investment, following the collapse of real-estate, the securitization disaster and poor yields of equities, whose expectations endorsed by a growing pool of hedge, pension and sovereign funds will transform it in a selffulfilling prophecy;

(3) The recent development since 2006 of deregulated oil future trading, allowing spot oil price to be actually more and more determined by speculative
future markets and thus more and more decoupled from genuine supply-demand equilibrium.

Sornette says this “provides evidence that the recent oil price run-up has been amplified by speculative behavior of the type found during a bubble-like expansion.”

He may well be right but he fails to nail the argument in this paper.

There is another way in which faster-than-exponential price rises can occur and that’s from a faster-than-exponential rise in demand. What Sornette fails to show is that the recent price rises cannot be explained by a faster-than-exponential rise in demand from economies such as China and India.

That’s not beyond the realms of possibility but Sornette seems to ignore it. (Of course, the Chinese and Indian economies may be part of their own larger bubble but that’s another issue).

Sornette says oil price rises may be the result of speculation. Then again, they may not.

You don’t have to delve far into the realms of scriptwriting before you’ll be pointed towards a book called Story by Robert McKee, which explains why scriptwriting is more akin to engineering than art. McKee examines story-telling like a biologist dissecting a rat. But after taking it apart, he explains how to build a story yourself using rules that wouldn’t look out of place in a computer programming text book.

McKee has become so influential that huge numbers of films, perhaps most of them, and many TV series are now written using his rules. But the real measure of his success is that there are even anti-McKee films such as Adaptation that attempt to burst McKee’s bubble.

Given that scriptwriting has become so formulaic, shouldn’t science have a role to play in analysing it? That’s exactly what Fionn Murtagh and pals at the Royal Holloway College, University of London have done in a project that analyses scripts in a repeatable, unambiguous and potentially-automatic way.

Using McKee’s rules they compare the script of the film Casablanca, a classic pre-McKee movie, with scripts of six episodes of CSI (Crime Scene Investigation), a classic post-Mckee production, and find numerous similarities.

That’s hardly surprising since McKee learnt his trade analysing films such as Casablanca, so anything written using his rules should have these similarities.

What’s interesting about the work is that Murtagh and mates want to use their technique to develop a kind of project management software for scriptwriting. That’s an ambitious goal but one that might find a handy niche market, particularly since many scripts, TV serials in particular, are now written by teams rather than individuals and so need careful project management from the start.

The challenge for Murtagh and co will be to turn this aproach into a bug-free, easy-to-use package that has the potential to become commercially viable. And for that they’ll almost certainly need some outside help and funding. Anybody got any spare cash?

…so said Pink Floyd in Dark Side of the Moon. And how right they turned out to be.

The statistical rules governing the distribution of money and wealth bear more than a passing resemblance to the ideal gas laws. In fact, the statistical mechanics of money and wealth distribution have their own sub-headings in the Econophysics chapter of the forthcoming Encyclopedia of Complexity and System Science. There can be no greater accolade for an incipient field of endeavor than that.

The chapter is an excellent introduction to the physics of money, a new science that I know will be close to yer heart. It gives the history of the topic as well as the current state of the field. Believe me, this is gonna be a growth area, particularly when somebody starts mapping the way money flows through the economy onto the social structures and webs that exist within society. It’s gonna be dynamite.

Now I know what ya’ll thinkin. There ought to be some kinda secret knowledge known only to physicists that allows them to horde more than their fair share of this stuff. After all, Pink Floyd managed it.

Ain’t Google Adwords a miracle o’ modern science? Here’s a system that searches your web page for keywords, hunts for advertisers who wanna have their message displayed next to these keywords and then auctions the advertising space to the highest bidder. All in the twinklin’ of an eye. Adwords is so good that it’s made Google millions or billions or zillions (who’s countin’?)

What can game theory tell us about the future of this digital auction house? According to Sudhir “Secrets” Singh, an electrical engineer at the University of California, Los Angeles and his buddies, game theory suggests that everybody would benefit by the emergence of a new kind of online business that exploits the inefficiencies of the Adwords system.

Here’s the thinkin’. There is a limit to the number of advertising slots on each page and this leaves advertisers a-scramblin and a-scufflin for spaces next to the most popular keywords. Inevitably, the advertisers who miss out are left a-sobbin and a-wimperin at the end of the day. The sobbers and wimperers are perfect fodder for the new businesses.

According to Secrets Singh, these businesses are gonna buy up popular keywords and then resell them to advertisers who want to ensure they don’t miss out on a slot. Secrets and his crew have built a model of this new market and calculated the revenues and payoffs for all parties. The model assumes that this game is a symmetric Nash equilibrium, meaning that everybody plays in the same way (or at least that nobody has anything to gain by unilaterally adopting a different strategy) .

Under these circumstances everybody wins–the auctioneer, the reseller and the bidders.

Ain’t that a bee-yoo-tiful story? So ya’ll gonna see resellers springin up all over the place soon. Secrets Singh and his buddies even have a start up called Ilial.com and there ain’t no prizes for guessing what that’s gonna be doin’.

They’ll already be a-dreamin and a-wondrin about the zillions they gonna make.

I know ya’ll lurv a happy endin. So ya’ll keep quiet about Adwords not being a symmetric Nash equilibrium. Y’hear?

Gravity waves do one helluva job a-squeezin and a-squashin everything in their path. Plonk a big aluminum bar in the way and gravity waves will squash it in one direction while stretchin it in another. With careful measurements yer should be able to spot this.

In fact in the 1960s, Joseph “Big foot” Weber at the University of Maryland claimed to have done just this although everybody else ignored him

Now a group at CERN in Switzerland have finished analysing the rumblin and a-tremblin of a bar of frozen aluminum called Explorer.

The result? Zip, zilch, zero. They ain’t found nothing.

Which shows that although we all been rootin’ for Weber all these years, he was barkin’ up the wrong tree from the start or just plain barkin’. (Unless there was some extra heavy stuff goin down somewhere in the universe in 1969 and I don’t mean in the Berkeley dorms.)

One thing though. By not seeing nothin, Explorer puts an upper limit on the size of gravity waves and this limit is about the same size as the one determined by the giant laser interferometer LIGO (which ain’t seen gravity waves either).

The difference is that LIGO cost somewhere in the region of $400 million, substantially more than a lump of aluminum.